It aims to consolidate and amend all laws relating to the direct taxes in order to facilitate voluntary compliance and increase the tax-GDP ratio. With its 319 Sections and 22 Schedules, the DTC aims to replace the old Income Tax Act and provide a more stable, efficient and overall better code for taxation incorporating the best taxation principles and proven international practices.
Examples of Direct Taxes in India:
Capital Gains Tax
- Income tax is the most common and most important tax that an Indian must pay.
- It is charged directly on the income of a person.
- The rate at which it is charged varies, depending on the level of income.
- It’s charged to individuals, co-operative societies, firms, companies, Hindu Undivided Families (HUFs), trusts and any artificial judicial person.
- Income tax is charged on an income known as “taxable income”, which is: Taxable income = (total income) – (applicable deductions and exemptions).
- Income from house and property.
- Income from business or profession.
- Income from salaries.
- Income in the form of capital gains.
- Income from other sources.
The different heads of income under which income tax is chargeable are:
- Levied on companies who exist as separate entities from their shareholders.
- Foreign companies are taxed on income that arises, or is deemed to arise, in India
- It is charged on royalties, interest, gains from sale of capital assets located in India, fees for technical services and dividends.
- Includes Minimum Alternative Tax (MAT) which was introduced to bring Zero Tax companies under the income tax net, whose accounts were made in accordance with the Companies Act.
- Includes Fringe Benefit Tax (FBT) which is a tax that companies pay on the fringe benefits provided (or deemed to have been provided) to employees.
- Incudes Dividend Distribution Tax (DDT) which is a tax levied on any amount declared, distributed or paid as dividend by any domestic company. International companies are exempt from this tax.
- Includes Securities Transaction Tax (STT) which is a tax levied on taxable securities transactions. There is not surcharge applicable on this.
Capital Gains Tax
- Taxed on the income derived from the sale of assets or investments.
- Capital investments cover homes, farms, businesses, works of art, etc.
- Capital gains = (money received from sale) – (cost of capital investment).
- Categorized as short-term gains (gains on assets sold within 36 months of acquisition) and long-term gains (gains on assets sold after 36 months of acquisition and holding).
- Voluntary tax that is paid by the taxpayer when the asset it sold.